Recognition, Measurement & Regulatory Framework

Question 1

Carrying amount under Historic Cost is calculated:

Answer 1

Historic Cost
Carrying amount CA = Cost – Accumulated Depreciation

Dep’n = (Cost - Residual value) / expected life

Question 2

Fair Value means:

Answer 2

the price that would be received to sell an asset or paid to transfer a liability

Question 3

Current Cost means:

Answer 3

The amount that would have to be paid if the same or an equivalent asset was acquired currently.

Carrying amount CA = Current Cost – Accumulated Depreciation

Dep’n = (Current Cost - Residual value) / expected life

Question 4

Value in Use means:

Answer 4

The present discounted value of the future net cash inflows that the item is expected to generate.

Question 5

Advantages of Historical Cost Accounting are:

Answer 5

1. Enhances comparability
2. Cost is known and can be checked to an invoice (easy to verify)

Question 6

Disadvantages of Historical Cost Accounting are:

Answer 6

1. contain mixed values, some items are at current values and some are at out of date values
2. understate assets and overstate profit
3. overstate gearing in the SFP (because we don’t revalue the asset, therefore nothing in the Revaluation reserve (EQUITY)

Question 7

Benefits of adopting IFRS are:

Answer 7

-high-quality and transparent global standards
-intended to achieve consistency and comparability

Companies that use IFRS and have their financial statements audited in accordance with International Standards on Auditing (ISA) will have an enhanced status and reputation.

Question 8

The IFRS Interpretations Committee ROLES:

Answer 8

1. Interpret the application of IFRSs
2. Provide timely guidance on financial reporting issues not specifically addressed in IFRSs
3. Publish draft Interpretations for public comment

Question 9

How IFRs are created?

Answer 9

A Planned Discussion Eliminates Standard Meetings
A–> Agenda
P–> Plan the project
D–> Discussion paper
E–> Exposure draft
S–> Standards published
M–> Meetings to review